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HMRC powers – a step too far? By Rebecca Benneyworth
Its too late to change the 2008 finance bill, says top tax lecturer, Rebecca Benneyworth, but there is still the Taxpayer's Charter... The professional bodies have expressed significant concern about the new powers available to HMRC proposed by the Finance Bill 2008. I suspect that the only reason that this has not been the source of hot debate on Accountingweb.co.uk is that the powers outlined in the Bill have yet to impinge on the consciousness of most accountants.
"The Powers Review", as is has been coined, is a necessary review of the powers of the tax authority after the merger of HM Customs and Excise and the Inland Revenue in 2005. Until 2007, the merged tax authority has been operating on “legacy powers”; that is the powers available to the two separate tax authorities dating from when they were indeed separate. This is not a state of affairs that is conducive to effective operation, and thus the powers review is a necessary, and welcome, opportunity to revise and update the administration of tax.
The first statutory evidence of the powers review was in Finance Act 2007, after an announcement in the 2007 Budget that a new Powers Act would not be forthcoming. We shall see HMRC powers matters likely in all Finance Acts from 2007 until 2010 at least, and possibly 2011, followed, one would hope before too long, by a consolidation of those powers into an HMRC Powers Act around 2012 or so. We already have a revamp of criminal powers in place, together with new penalties for errors on returns leading to an understatement of tax affecting the main taxes.
Finance Bill extends the established penalty regime to most other taxes and duties, and carries the model of a behaviour based penalty into the area of failure to notify, affecting both income and corporation taxes, national insurance contributions and VAT. While this represents a welcome development for those traders late notifying liability to Class 2 NIC, it presents somewhat of a challenge for those late registering for VAT, for which significantly increased penalties are likely.
The real controversy starts with the powers in Schedule 36 of the Finance Bill 2008. This sets out various information and inspection powers which HMRC considers are appropriate to a modern tax authority. It is my view that most rational taxpayers would not regard the powers as excessive in themselves, but it is the lack of right of appeal that many consider questionable.
Take the right to enter business premises. The Bill seeks the right for an officer to enter any business premises and inspect the premises, business assets on those premises and business documents on those premises if the inspection is reasonably required for checking the tax position of any person (which is not necessarily the person operating from those premises). Senior people at HMRC argue that this power does no more than powers previously held by Customs and Excise – and I would probably agree with that statement. But it is specious to imply therefore that this represents no extension of powers. I do not dispute that the new power is appropriate in some circumstances – and I am satisfied that this power needs to be placed on the statute books. But there is no limitation to the use of this power. The only constraint is that the inspection is reasonably required for the purpose of checking somebody’s tax.
Where we have a major disagreement with the tax authority is that powers necessary to compliance work in respect of dishonest taxpayers are freely available in respect of all taxpayers, with no necessity that their use be justified to an independent tribunal, or indeed any form of external scrutiny.
At the suggestion that taxpayers should have a right of appeal against the use of this power – and a number of others against which there is no specific right of appeal, senior HMRC people baulk. I can understand the concern that dishonest taxpayer will waste everyone’s time appealing left right and centre to protect themselves from, one hopes, the inevitable; but is this sufficient to deny the ordinary taxpayer the right of appeal against the unreasonable use of powers?
HMRC’s answer to this is effectively “Trust us – we shall be reasonable”. But I can see that some advisers may question this as an appropriate response – some based on bitter experience.
The Bill is shortly to become law, so any hopes of introducing additional rights of appeal into the source legislation are in vain. But the fight for taxpayers rights could be viewed as just starting. We have a suitable target for action on this front in the Taxpayers Charter. If the Charter sets out basic rights and responsibilities, backed by a right of appeal then all is not lost. A robust charter with a statutory right of appeal should be no threat to a modern tax authority which is confident that well trained staff will use their powers appropriately. Policy makers might ask “Why?”. I would respond “Why not?” What has an efficient tax authority got to fear from awarding (legal) rights such as the right to be believed; the right to expect that powers are used reasonably? With a right of appeal to an independent Tribunal.
Is this a lose-lose for HMRC? Clearly the authority will be concerned that all that will flow from such a step would be a stream of frivolous appeals by the dishonest seeking to avoid or delay the inevitable outcome of their behaviour. One would hope that the Tribunal will give such people short shrift, with an award of costs against them. But the benefits in relation to the majority of taxpayers (or indeed citizens at large) are significant. HMRC could point to these over-riding rights as a symbol of fairness. The tax authority could use the Charter to reinforce the obligations of the citizen: to be honest in their dealings with the tax authority; to take care regarding their tax affairs. The Taxpayers Charter could stand as a symbol of the contract between the citizen and the state – taught in schools and used as a mechanism to change the culture of tax compliance and attitudes to tax for ever. The message that the citizen has responsibilities to the state and in return the state will be reasonable in their dealings with them (and answerable for this) is a powerful one.
The new Taxpayers Charter presents an opportunity to both HMRC and Government. Let it not be lost!
Number of comments: 4
AccountingWEB.co.uk 14-Jul-2008
Categories: Tax Features, Tax - Rebecca Bennyworth
Times read: 2842
And there's the rub. I do trust most of the top people I've met in HMRC (and previously at IR). I'd even go so far as to say that I would trust many of the frontline Inspectors I have met too.
But trust the whole body and all those who gain power within it into the future? Sorry. That's a step too far.
Let's hope the powers that be are able to agree to enshrine our rights and safeguards (to be set out in a charter) in the legislation.
I entirely accept the need to distinguish the way that the deliberately dishonest are treated from the rest of us. Indeed I've long thought it 'criminal' that criminal law enables obviously guilty defendants to escape on technicalities. So ultimately there does need to be some over arching principles - as will be set out in the Charter (I hope).
Mark Lee
Tax Advice Network
Mark Lee
To be fair regarding penalties for errors.. (I quote) "To err is human, but to forgive is now HMRC policy". This refers to the new NIL penalty for errors having taken reasonable care (within a person's abilities and circumstances).
At least this is one area where I wholeheartedly agree with the new legislation. Not being bashed over the head for a simple error is a great step forward.
The next step is to enshrine both sides' rights and responsibilities in a robust taxpayer's charter with statutory force.
@Allen
Analogous to the recent items on penalties for causing death by careless, or dangerous driving.
In one case, it's a "could have happened to anyone" - looked down to check speedo when somebody stepped out, as opposed to cutting someone up and causing a collision.
Perhaps.
I believe that the majority of taxpayers are honest or at least they try to be. Sometimes they can be held to be negligent but that's not dishonesty, or be guilty of omissions but that's down to inattentiveness.
After all, to err is human and shouldn't be punishable by tyrannical penalties constructed by a government that's hell-bent on increasing never-ending stealth taxes.
Now fraud is a different kettle of fish; it's usually pre-empted and is knowingly making a false representation to obtain an unjust advantage. So it's no revelation that the taxpayer will get what's deserved.
But with the new finace bill 2008 comes changes. What we may feel is deserved or equitable has no bearing when the taxpayer loses the right of appeal, whether right or wrong. When the revenue retorts: "trust us, we shall be reasonable" and exclaims: "new powers", different rules and uncertainties become visible. This inspires excessive abuse of powers and over zealous revenue officials having undue influence. With no right of appeal against the heavy brigade it's even more disturbing that the taxpayer's charter is perhaps, to become the tool of change and institutionalised as laid in stone outlined by Rebecca.
Dr Allen Lunn
